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2018 Consumer Products Industry Outlook

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U.S. consumer products companies can drive growth in 2018 by developing new approaches to globalization, innovation, and digital investments.

Today’s business environment is in a constant state of change. The ability of consumer products (CP) companies to quickly adapt, innovate, and differentiate themselves in the marketplace is often critical to success. While many CP companies continue to pull traditional levers that enable differentiation, such as global expansion and innovation, they’re also developing new approaches and bolder strategies.

The current economic environment helps set the stage for CP companies’ ability to expand globally, innovate, and continue their journey toward digitization. According to Deloitte LLP’s “U.S. Economic Forecast,” the U.S. economy is likely to grow at a moderate 2.0 to 2.5 percent rate in 2018. Consumers, who have benefitted from a strong labor market and rising incomes, are helping to fuel this growth. As of September 2017, unemployment was at 4.2 percent—a record low—with an average of 148,000 jobs added each month. Real disposable personal income was up 1.8 percent in 2017 over 2016 and is likely to rise by more than 2.0 percent in 2018, according to the Deloitte forecast.

Against this backdrop of a more stable U.S. economy, CP companies can distinguish themselves from the competition by focusing on three key areas in 2018.

Increased Globalization

U.S. CP companies can drive growth and brand differentiation by expanding into global markets, particularly emerging markets in Asia, the Middle East, and South America. Significant global trends that may specifically affect emerging markets include:

The rise of the global middle class, which is expected to reach nearly 5 billion people by 2030, according to the Brookings Institute. In China, for example, the middle class is expected to make up 70 percent of the population by 2030 and consume nearly $10 trillion in goods and services.

The growing influence of younger generations, particularly in emerging markets. In India, for example, about 65 percent of the population is under the age of 35, compared with about 46 percent in the United States.

One approach to achieving globalization is partnering with local brands. Such partnerships can help U.S. companies adapt their products to the needs of specific markets and can help mitigate some of the risk in entering emerging markets. For example, in a move to enter the $7 billion Chinese toy market, Mattel recently entered an agreement with Chinese e-commerce giant Alibaba. The partnership lets Mattel target an audience of roughly 443 million active buyers through Alibaba’s online marketplace.

Another approach to globalization is developing deep insights about consumers in emerging markets. For example, Kentucky Fried Chicken—which now has more than 5,000 KFC outlets in China—enhanced its U.S. business model to embrace local food tastes in China. Its continually updated menu features items such as breakfast congee, Peking duck wrap, fried dough, and a rice-based lunch combo.

Bolder Paths to Innovation

While many CP companies have traditionally pursued innovation as a source of growth, they are now experimenting with new approaches to market research, idea generation, and product development. For example, to engage with a wide range of innovative partners and hasten the development process, some CP companies are setting up their own venture capital units to invest in startup companies that are closely in tune with consumers. Coca-Cola’s Venturing & Emerging Brands (VEB) unit operates as part venture capitalist, part brand incubator, and part industry forecaster. The unit invests in startups and produces groundbreaking beverages that can help satisfy unmet consumer needs, from NOS energy drink to Zico coconut water. VEB invests in startups that have reached annual revenue of $10 million and evaluates between 150 and 200 new brands a year.

Similarly, L’Oréal has invested in Founders Factory, a digital accelerator and incubator, which allows the CP company to connect with a global ecosystem of promising startups and entrepreneurs in the beauty industry. Under the partnership, L’Oréal is Founders Factory’s exclusive partner for investments in beauty tech startups worldwide. L’Oréal has focused on digital innovations, with products such as a Makeup Genius augmented reality app and a skin sensor designed to monitor ultraviolet light exposure.

Another new approach CP companies are taking to innovation is crowdsourcing. Many CP companies are asking entrepreneurs and consumers to submit ideas for products and services through online communities. For instance, consumer health product company Reckitt Benckiser teamed up with Indiegogo, an online community for entrepreneurs, to launch the “Healthier Tomorrow Challenge.” The challenge is aimed at accelerating the pace of innovation in the health and well-being sectors and gives entrepreneurs an opportunity to submit ideas for health-related products.

Digital Investments

Many CP companies have invested in digital technologies in recent years to interact with consumers and improve operations, but there’s still room for improvement. According to a Deloitte survey, “The Grocery Digital Divide,” 51 percent of grocery sales in 2016 were influenced by digital somewhere along the path to purchase, putting grocery on par with digital stalwart categories like electronics and home goods. In some organizations, the company’s digital strategy is increasingly becoming part of its overall business strategy. CIOs at CP companies may benefit from considering three areas of digital investment in 2018.

Real-time customer engagement. To communicate directly with consumers, many CP companies have created social listening programs to monitor social media conversations and respond in real time. Often referred to as newsrooms or “war rooms,” these units are characterized by speed and agility. For example, Adidas created digital newsrooms in 12 cities around the world to enhance its real-time marketing capability. Social media teams monitor trending topics linked to the brand and create real-time content. During the UEFA (Union of European Football Associations) EURO 2016 tournament, Adidas used digital newsrooms to broadcast stories about the athletes in real time over social media channels and digital screens in stadiums. Over a 30-day period, Adidas received over 1.2 million shares—the highest number of social shares garnered by a brand during the UEFA tournament.

Expanded e-commerce. Though still representing just a small portion of total CP sales, online sales are experiencing dramatic growth. Online sales of consumer packaged goods (CPG) are expected to reach an estimated $36 billion in 2018, up 350 percent from an estimated $8 billion in 2013. By comparison, CPG sales in brick-and-mortar stores are expected to reach an estimated $682 billion in 2018, up just 3.6 percent from an estimated $658 billion in 2013.

Many CP companies are increasingly turning to e-retailers in addition to traditional sales channels. For example, after years of selling directly to consumers through offline stores and other retail partners, apparel manufacturers like Adidas and Under Armour are selling shoes and clothing on Amazon.com. However, while e-retailers can provide CP companies access to buyers, e-commerce sales can potentially cannibalize CP sales through brick-and-mortar stores and other traditional channels. E-retailers often sell products at a lower price, potentially cutting into the manufacturer’s margins. The shift to e-commerce is increasingly becoming about access to customer data; the more e-retailers sell, the more brands can learn about customers, enabling them to develop cross-sell and upsell strategies.

Blockchain applications. Blockchain, a distributed ledger technology that facilitates transactions in a secure, digitized environment, is emerging as an important application for CP manufacturers, especially in the context of their supply chains. According to Deloitte’s Blockchain Survey 2017, 42 percent of CP executives surveyed said they plan to invest an average of $5 million or more on blockchain technology in 2018. Blockchain can help prevent fraudulent activities through its rigorous online protocol, well-programmed building blocks, and “smart contracts”—self-executing computer programs that automatically implement the terms of an agreement between parties when conditions are met. One potential blockchain application for CP companies is loyalty rewards programs. The platform can connect multiple organizations, such as retailers and banks, and their loyalty programs. It facilitates interactions, especially the converting and exchanging of loyalty points. The platform connects programs through blockchain nodes, which reach consensus about a transaction without the need for a middleman or clearinghouse.

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Expect 2018 to be a year of newer approaches and bolder moves by many CP companies as they strive to build differentiation and growth. Against the backdrop of a more stable economy that sets the stage for achieving globalization, innovation, and increased digitalization, CP companies will likely continue to reinvent traditional levers to stimulate growth in a competitive business environment.

2018 Consumer Products Industry Outlook

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